The IRS allows businesses, freelancers, and entrepreneurs to take advantage of several tax deductions, which help reduce the amount you owe the government each year. Luckily as a small business owner, you can write off several business expenses as tax deductions. Many deductions require documentation, so consider a receipt and expense tracker to help record, organize, and substantiate your expenses.
Check out these small business tax deductions you can utilize for your organization.
Office equipment and supplies
Whether you’re running a small business from an office or your home, certain supplies are essential to keep your operations running smoothly. That’s why the IRS allows you to deduct the cost of certain office equipment and supplies from your small business taxes.
Some examples of these deductible business expenses include:
- Equipment, such as computers, printers, copiers, furniture, etc.
- Office supplies, such as pens, paper, ink, toner, etc.
- Work-related postage and shipping costs
- Computer software essential to your business, such as accounting software and invoice software.
Home office deduction
If you’re a small business owner or freelancer working from home, take advantage of the home office deduction, which allows you to deduct $5 per square foot of your home used for business purposes. You can deduct up to 300 square feet, meaning you can receive a maximum deduction of $1,500.
To qualify for this deduction, you must meet one of these criteria:
- Exclusive and regular use: You must use a portion of your home, i.e., house, apartment, condo, etc., for regular business use. This can also include structures on your property, such as a garage, barn, studio, or greenhouse.
- Principal place of business: Your home office must be the primary location of your business or a place where you regularly meet customers and clients.
Business insurance premiums
Business insurance is often required to sign a lease on office space or get a business license, meaning you’ll have to pay a monthly or yearly premium. Luckily, you can deduct the cost of your business insurance from your taxes. Some tax-deductible insurance policies may include:
- General liability insurance
- Professional liability insurance
- Business interruption insurance
- Cyber liability insurance
- Commercial property insurance
- Workers’ compensation insurance
- Unemployment insurance
- Commercial auto insurance
- Health and life insurance
Marketing and advertising
Marketing and advertising are key elements to the success of any business, small or large. That’s why the IRS lets you deduct 100% of your marketing and advertising costs related to your business, up to a maximum of $5,000. Examples of these expenses include:
- Printing business cards, flyers, banners, etc.
- Website hosting and design costs
- Running paid social media ads
- Hiring a social media marketer or SEO consultant
- Marketing software subscriptions
Startup business expenses
If you launched a small business in the last tax year, you could deduct 100% of your startup expenses, up to $5,000. The cost must have been incurred before your business became operational to qualify as a startup expense. Here are some examples of startup expenses:
- Traveling to conferences
- Building and designing a website
- Hiring a business consultant
- Launching a marketing campaign
- Attending training sessions related to your industry
Business vehicles
If you use a vehicle for business-related purposes and never for personal use, e.g., a work van or truck, you can write off all expenses associated with operating and maintaining it. There are two ways you can deduct your vehicle-related expenses:
- Standard mileage rate: The IRS allows you to deduct expenses on your leased or owned vehicle with a fixed rate, $0.58 per mile. This tends to be the preferred method, especially if you log a large number of miles on your vehicle per year.
- Actual expense method: This method lets you deduct the actual expenses of owning and operating your vehicle. The actual expense method may be beneficial to you if your vehicle is older and needs regular maintenance and repairs. Here are some of the expenses can you can typically deduct from your taxes:
- Gas and oil
- Maintenance and repairs
- Auto insurance
- Registration fees
- Parking fees
- Tolls
- Lease payments
- License fees
Employee salaries and benefits
If you're a small business owner with employees, you can deduct their salaries, benefits, paid time off, bonuses, and payroll-related employment taxes. There are some requirements for writing off these expenses, such as:
- The employee can’t be a sole proprietor, partner, or LLC member in the business.
- The employee’s salary should be reasonable and necessary.
Check with an accountant or tax professional to ensure you’re calculating and evaluating these deductions correctly.
Business meals
Do you often take clients out to dinner or take your staff to a nearby restaurant for the occasional work lunch? The IRS allows you to write off 50% of food and beverage purchases for these meals as long as they relate to your business. Make sure you keep the following documentation to help deduct these expenses from your taxes:
- Date and location of the meal
- The business relationship you have with the person or people
- The total cost of the meal
Business credit card and loan interest
The IRS allows you to deduct interest paid on business loans or business credit cards. Currently, you can only write off interest paid that equals 30% or less than your taxable income. If you want to claim this deduction, you must meet the following IRS requirements:
- You must be legally liable for the debt
- You and the lender must expect the debt to get repaid
- You and the lender have a legitimate debtor/creditor relationship
The IRS and Congress constantly change tax laws and deductions, so stay informed about those alterations. If you’re unsure what you can or can’t write off on your small business taxes, speak with a tax professional for assistance.
